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By Oren Orkin
A condo hotel (AKA condotel) is a great way to own a luxurious vacation home without the traditional hassles of ownership such as property maintenance and finding renters when you’re not using it.
Buying this type of property is similar to purchasing a typical condominium. However, there are a few extra considerations that lenders evaluate when underwriting the loan. Consider the following frequently asked questions about condo hotel unit financing.
How do I qualify for a condo hotel loan?
Most lenders qualify you based on your income and underwrite the file as if it was an investment property. Unlike traditional residential deals, the lender will not count potential rental income from the property for qualifying purposes.
What is the debt-to-income ratio allowed when buying a condo hotel unit?
Overall debt-to-income ratio should be no more than 45%.
Do lenders need to approve the project itself?
Depending on the type of financing you require, the lender may need to pre-approve the project in order to allow certain terms on the loan. Condo hotels are particularly common to urban, popular tourist cities such as Las Vegas, Miami and Chicago so buying a unit in those kinds of location should be straightforward. Are there any pre-sale requirements? Most lenders like at 75% of total units under contract before financing a unit in that project. However, certain lenders do not have any pre-sale requirements as long as they have pre-approved the project.
What if there are commercial spaces such as retail and restaurants in the project?
As long as the commercial space and usage is limited, is typical to that area and project, and the project is residential in nature, most lenders will finance your deal.
Are there any minimum unit size requirements?
Most lenders require units to be at least 600 sq. ft., as the larger the unit, the more desirable it is for rental and resale. Some lenders will wave minimum size requirements as long as the project is pre-approved. Others will require that condo hotel units have at least basic kitchen facilities.
Are there any minimum down payment requirements?
Condo-hotels buyers are usually required to put a minimum of 20% down payment although a higher down payment could be required on a larger purchase price. As an example, a lender would offer 80% LTV (loan to value) up to a $350,000 loan amount and $437,5000 maximum purchase price; 75% LTV up to a $650,000 loan amount and $867,000 maximum purchase price; and 45% LTV up to $1 million loan amount and $2.22 million maximum purchase price.
In general, secondary financing is not allowed.
What kind of documents will I need to get pre-approved?
Just like any other residential loan the lender will require documentation about your income and assets and will check your credit (an average middle FICO score of approximately 680 is required though exceptions on lower scores can be made).
Self-employed buyers with complicated or extensive tax returns can qualify using a stated income program, hence streamlining the loan approval process. An interest-only option payment is also available when the buyer is qualified based on interest-only payments.
In order for a buyer to get approved for financing for the purchase of a condo hotel, the property must be a fee simple or a leasehold property:
- Fee simple: Absolute ownership in real property; owner is entitled to the entire property with unconditional power of disposition during the owner’s life.
- Leasehold: Estate or interest in real property held by the virtue of a lease. Leasehold refers to land which is leased to the individual(s) who owns the structure.
This article was provided by Oren Orkin of Capital Funding Mortgage Company, LLC, a residential and commercial lender that can provide financing for condo hotel units. For more information, contact Oren at (312) 867-5363 x206 or by email at oorkin@capfundmtg.com.
